In the mid-1700s the American
Colonies were prospering, in part
because they were issuing their own
money called "Colonial Scrip," which
was strictly regulated and did not
require the payment of any interest.
When the bankers in Great Britain
heard this, they turned to the
British Parliament, which passed a
law prohibiting the Colonial Scrip,
forcing the colonists to accept the
"debt" or "fiat" money* issued by
the Bank of England. Contrary to
what history teaches, the American
Revolution was not ignited by atax
on tea. According toBenjamin
Franklin, it was because "the
conditions [became] so reversed that
the era of prosperity ended." He
said:

"The Colonies would gladly have
borne the little tax on tea and
other matters had it not been the
poverty caused by the bad influence
of the English bankers on the
Parliament, which has caused in the
Colonies hatred ofEnglandand
theRevolutionary
War."

First Bank of theUnited
States

TheFirst
Bank of the United States, a
private institution, was chartered
by the Bank of England in 1791 and
operated for 20 years as the
government’s fiscal agent and
depository of funds. Two thirds of
the bank was owned by British
interests. Political pressure by the
Democratic-Republicans prevented
re-chartering in 1811. However, the
problems involved with wagingwar
against Britain in 1812pointed
to the need for a central fiscal
agent and sentiment for the BUS
reemerged following the conflict.

Second Bank of theUnited
States

In 1816, during the administration
of PresidentJames
Madison, the
Democratic-Republicans reversed
course and supported the creation of
a Second Bank of theUnited
States.
It was patterned after the first and
quickly established branches
throughout theUnion.
The Second
BUS's initial years were
difficult and are largely remembered
for its fraud and corruption. The
Second BUS became a political issue
again under PresidentJames
Monroe, during the economic
downturn accompanying thePanic
of 1819.

Many local state-chartered banks,
eager to follow speculative
policies, resented the cautious
fiscal policy of the Second BUS and
looked to state legislatures to
restrict its operations. Critics
again decried the bank’s
mismanagement and conservative
policies, and several states enacted
legislation to restrict its
activities by levying special taxes
against it. The state ofMarylandimposed
a tax on the bank's operations, and
when James McCulloch, the cashier of
theBaltimorebranch
of the Second BUS, refused to pay
the taxes, the issue quickly rose to
theSupreme
Court. In many ways, the opinion
in that case represents a final step
in the creation of the American
federal government.

McCulloch v.Maryland(1819)

The issue involved, the power of
Congress to charter a bank, seems
insignificant, but the larger
questions go to the very heart of
constitutional interpretation, and
are still debated today.

In 1791, as part of his financial
plan, Secretary of the TreasuryAlexander
Hamiltonproposed
that Congress charter a Bank of theUnited
States,
to serve as a central bank for the
country.Secretary
of StateThomas
Jeffersonopposed
the notion on the grounds that the
Constitution did not specifically
give Congress such a power, and that
under a limited government, Congress
had no powers other than those
explicitly given to it. (Jeffersonwas
absolutely correct.)

Hamilton responded by arguing that
Congress had all powers except those
specifically denied to it in the
Constitution, and that the
"necessary and proper" clause of
Article I invited a broad reading of
the designated powers. PresidentGeorge
Washingtonbacked
Hamilton, and the First Bank of theUnited
Stateswas
given a 20-year charter. The charter
expired in 1811.(The
argument byHamiltonis
completely the opposite as to the
real authority of the
CONstitution. (If
the
CONstitution does not
DIRECTLY authorize the government to
act, THEY CAN’T!!)(Hamilton
and Washington committed TREASON!)

In the case ofMcCulloch
v. Maryland(1819),
the state ofMarylandargued
that the federal government did not
have the authority to establish a
bank, because that power was not
delegated to them in the
Constitution. (A
correct argument!) Supreme
Court Chief JusticeJohn
Marshallwrote
the unanimous decision (A Void
Judgment) for the court that
declared the tax imposed by the
state ofMarylandagainst
the Second BUS was unconstitutional.
To paraphraseMarshall,
he conceded that the Constitution
does not explicitly grant Congress
the right to establish a national
bank, but noted that the "necessary
and proper" clause of the
Constitution gives Congress the
authority to do that which is
required to exercise its enumerated
powers. Thus, the court affirmed the
existence ofimplied
powers. (Implied
powers is unconstitutional and
TREASON)

On the issue of the authority ofMarylandto
tax the national bank, the court
also ruled in the bank's favor. The
court found that "the power to tax
involves the power to destroy. If
the states may tax one instrument
(of the federal government), they
may tax any and every other
instrument, the mail, the mint,
patent rights, judicial process.
This was not intended by the
American people. They did not
construct the constitutional
framework to make their federal
government dependent upon the
States." (The
imposition of “law” on the Sovereign
states is TREASON!)

Furthermore, he said, "The
Constitution and the laws made in
pursuance thereof are supreme; they
control the Constitution and laws of
the respective states and cannot be
controlled by them." (Not
True!)

The 1819 Supreme Court ruling did
not settle the greater issue. The
Second BUS was still controlled by
the Bank of England and foreign
investors, who not only profited
greatly by charging interest for the
use of their paper American
currency, but England still resented
American independence. The Second
BUS policies were too restrictive
for the needs of the burgeoning
nation. In an effort to break up the
Second BUS, PresidentAndrew
Jacksonin
1833 made federal deposits in 23 of
the state banks, referred to at the
time as "pet banks." (Jacksonkilled
the Second Bank of theUnited
States,
a gross
misnomer, the central banks
were not of theUnited
States. The
government is not “theUnited
States”,
which should read “States United” or
the “Confederation of States!”)

SenatorJohn
Tyleralso
was opposed to the Second BUS, but
he perceivedJackson's
action as a terrible abuse of
executive power and a violation of
states' rights. He condemnedJacksonon
the Senate floor. SenatorHenry
Clayfollowed
by urging the Senate to censureJacksonfor
his actions. (Jackson,
notWashington,
was the greatest president ever!!)

The U.S. Supreme Court ruled that a
central bank was constitutional, but
it is important to keep in mind
that, prior to theCivil
War, it was not at all
universally agreed that the federal
government itself should be the
arbiter of the limits of its own
powers. That is, Supreme Court
decisions were viewed by many,
including President Jackson, as mere
opinions and not Holy Writ, as they
are today. (Treason)

John Tyler assumed the presidency
following PresidentWilliam
Henry Harrison's sudden death in
1841. Soon afterTylertook
office, Congress passed a bill to
reestablish the bank.Tylervetoed
it and also a second such bill,
calling them unconstitutional and
against states' rights. Clay and hisallieswere
angry. All but one member ofTyler's
Cabinet resigned in support of Clay.
The Whigs severed ties withTyler,
officially expelling him from the
party. Tensions were still high when
onAugust 16, 1841,
President Tyler vetoed a bill that
called for the re-establishment of
the Second BUS. That sparked a
massive riot outside the White House
by enraged Whig Party members. (Tyler
wasn’t bad himself.)

The demise of the Second BUS led to
an alternative known as the
Independent Treasury System, which
was put into place in 1840, ended by
the Whigs in 1841, resurrected in
1846, and ended finally during theLincolnadministration.Abraham
Lincoln, a longtime Whig, but
elected president in1860on
the Republican ticket, was a
longtime supporter of a national
bank andprotectionism.

As soon asLincolntook
office, the old Whig coalition
finally controlled the entire
government. It immediately tripled
the averagetariff,
began to subsidize the construction
of a transcontinental railroad in
California even though a desperate
war was being waged, and on February
25, 1862, the Legal Tender Act
empowered the secretary of the
treasury to issue paper money
("greenbacks") that were not
immediately redeemable in gold or
silver.

The Republican Party establishment,
led byLincoln,
was very clear on what it hoped to
achieve with a central bank. Senator
John Sherman, brother of GeneralWilliam
T. Shermanand
chairman of the U.S. Senate Finance
Committee, declared,

"Nationalize as much as possible,
even the currency, so as to make men
love their country before their
states. All private interests, all
local interests, all banking
interests, the interests of
individuals, everything, should be
subordinate now to the interest of
the government." (Treason!)

Kentucky Democrat
Lasarus
Powell was not as enthusiastic.

"The result of this legislation," he
said, "is utterly to destroy the
rights of the states. It is
asserting a power which if carried
out to its logical result would
enable the national Congress to
destroy every institution of the
States and cause all power to be
consolidated and concentrated here
inWashington,D.C.]."

Conclusion

States' rights are still debated
today. (States
Rights have been Non-Existence since
1791!!) It
is however, doubtful that America as
we know it today would even exist
were it not for the wisdom of John
Marshall and Abraham Lincoln. The
formation of the modern American
government congealed in the Lincoln
Administration. A central banking
system is central to American growth
and independence. This became most
evident during economic downturns
and wars during the 18th and 19th
centuries.
America's
modern central banking
scheme,
theFederal
Reserve Systemwas
created by congress in 1913.

The capstone of the creation of the
American government was placed when
the Supreme Court noted that:

·The
"necessary and proper" clause of the
Constitution gives Congress the
authority to do that which is
required to exercise its enumerated
powers in the case
of McCulloch
v. Maryland(1819).
Thus, the court affirmed the
existence of implied powers.

·The
Constitution and the laws made by
the federal government are supreme.
The federal government controls the
states and cannot be controlled by
them.

*Debt or Fiat Money: The Bank of
England charged interest to use its
paper currency (which cost next to
nothing to produce; i.e. the paper
had no value in and of itself), as
if were a loan.

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